Circuit City Returns this Spring

Retail veterans Ronny Shmoel and Albert Liniado are bringing back Circuit City, once the number one big-box tech chain in the marketplace before filing for bankruptcy in 2008. Their ambitious plan includes retail outlets, web sales, branded and private-label products, licensed kiosks, mobile shops and franchise opportunities, all under the iconic red and white banner. The first store is expected to open in June, most likely in the Dallas market, and the relaunch of circuitycity.com is expected to happen at approximately the same time.

“We want to bring profitability back into retail,” said Liniado, Vice President of Business Development. The stores will range from 2,000 to 4,000 square feet and the product mix will be targeted directly at millennials. According to Shmoel, CEO of the enterprise, they expect to have 50 to 100 corporate-owned stores up and running by the end of the year and eventually an additional 100 to 200 franchised locations.

Source: Twice.com

Amazon Stock Price Plummets Despite Tremendous Success

After the market’s close on Thursday, Amazon.com Inc. reported fourth quarter earnings that missed expectations and the company’s stock plunged 13%. Wall Street analysts were forecasting record revenue of $35.9 billion for the company. Amazon did hit a new revenue record, but it missed expectations with sales of $35.7 billion.

That’s despite successes that were in stark contrast to their competitors. Amazon posted record profit last quarter and double-digit sales growth over the previous year. Prime memberships grew by 51% last year and according to a Consumer Intelligence Research Partners study, just under half of all U.S. households subscribe to prime.

Amazon Web Services, which boasts big name customers like Netflix, Airbnb, Major League Baseball, Expedia and Yelp, grew from 1.4 billion in 2014 to 2.4 billion in 2015, a 71% increase.

The biggest part of Amazon remains its retail business, and it’s smart home assistant, Echo, is poised to become the company’s third billion-dollar business soon. Echo has only been widely available for about 7 months but it consistently ranks high in Amazon’s best sellers list. It is a virtual assistant and audio speaker that lets you control and connect with other services through your voice. Echo was one of the surprise stars at this year’s Consumer Electronics Show and will be prominently featured in the online store’s first-ever Super Bowl ad.

CPG Growth Opportunities in 2016

In its report series “Taking Stock of CPG Past and Future: Gear Up Now for a Year of Growth", IRI reflects on the lessons learned in 2015 and provides insight into several key trends that will drive growth in 2016.

Growth is still a significant challenge for the CPG Industry. Faced with conservative shopper behaviors and a challenging economy, the industry is struggling to generate solid volume growth. And the trend is similar across retail channels.

According to the IRI report, several new and existing trends will shape the CPG industry in 2016, but three trends “hold particular promise for growth.”

• Circle the Wagons: The internet will account for approximately 50% of industry growth in the next several years and the CPG industry can’t afford to wait if they want to capture their fair share of this opportunity. While online CPG sales are still small – only about 2% of the total – the average annual growth of online CPG spending has topped 15 percent since 2010. Additionally, according to IRI, e-commerce plays a significant role in defining how consumers approach shopping. Over three-quarters of all shopping trips now begin online as consumers conduct research and plan their shopping trips. To solidify their understanding of the online path to purchase, CPG marketers must invest in digital marketing programs and “elevate their digital expertise”. CPG marketers who don’t will suffer.
• Melting Pot Gets Hotter: With more than 54 million Hispanic consumers in the US and population growth at three times the national average, the Hispanic population has been a key target for marketers for the past several years. According to the IRI report, the key to successful growth in this market will be an investment to understand Hispanic shoppers “across a deep and wide spectrum of attitudes and behaviors.” As the Hispanic population grows, marketing to the segment as a homogeneous group is ineffective. Marketers need to see the diversity within the Hispanic market and demonstrate a detailed level of understanding within it.
• Do More With Less (Media): Forty years ago consumers viewed an average of 500 ads in a given day. Today, consumers view an average of 5000 ads a day! The result is information overload for consumers and a lot of wasted effort and dollars for marketers. CPG marketers have an opportunity to move away from the “more is better” approach to media and focus on impact over exposure, or in other words, maximum media efficiency. Though difficult, getting there isn’t impossible with the right data, analytics and insights. Marketers need to effectively communicate with high-value shoppers and employ impactful micro-targeting methods.

For the full IRI report click here. To receive Accelerated Analytics’ own monthly Retail Industry Briefing Book (RIBB) full of key retail industry data compiled by our team, click here to request a copy.

Winter Storm Impact and Using Data to Prepare for Future Weather Events

The first winter storm of 2016 slammed the Northeast and Mid Atlantic last Friday and Saturday leaving much of the area paralyzed. Despite warmer temperatures early this week, many areas are still recovering and some schools and businesses remain closed as local governments and residents dig out from up to 2 ½ feet of snow and ice.

While the economic cost of the storm due to structural damage and business interruption will likely reach into the billions, the net impact on the retail industry will essentially be neutral according to Weather Channel meteorologist and business analyst Paul Walsh. The demand generated by storm predictions creates a surge for for grocery stores, home improvement retailers and discount department stores like Walmart. This pre-storm boon essentially balances the losses experienced during the winter storm.

Whether winter weather impacts an Individual retailer positively or negatively, they can prepare for the next winter storm by analyzing historical data. Retailers can use “forecasts and analytics to understand how past storms have impacted sales so they know what kind of products to feature and the inventory needed,” explained Walsh. Accelerated Analytics can provide that data so that vendors in the retail sales and supply chain markets can tackle large weather events head-on.

NRF’s Big Show Recap

The NRF’s Big Show wrapped up on Wednesday after record attendance, and, as we unwind from an exciting week in New York, we find ourselves reflecting on the event as a whole and on the key takeaways that will impact Accelerated Analytics in 2016.

Matt Shay, President and CEO of the National Retail Federation, opened the trade group’s annual Convention and EXPO with a state-of-retail message, highlighting the event’s transformation under the strategic guidance of Shay and the NRF board.

“We’ve invested in attendee experiences, added a third day of exhibits and gained exclusive control of the entire convention center.” Shay said. 

The event saw record numbers, with 35,000 people in attendance and roughly 580 exhibitors. While the convention was dominated by technology companies, both those facilitating consumer-driven change in the retail industry and those designed to help retailers replace, upgrade and modernize their systems, very few occupy the niche market of POS data and analytics. “There were about 50 companies in the Data and Analytics section of the expo, but very few that do what we do,” said Jennifer Freyer, Director of Sales and Marketing for Accelerated Analytics.

As customer expectations continue to rise, it’s imperative that vendors and retailers have access to their data -  down to the item level -  quickly. Accelerated Analytics is well positioned to meet that need via our one-click access to SKU/store level sales to identify trends, optimize assortments and track promotions. Plus, our forecast reports and low inventory and out of stock alerts help our clients ensure the right inventory is at the right stores.

Our visit to the Big Show also provided the opportunity to participate in several meetings with GS1, as we work with them toward standardizing POS data sharing in the retail industry. This is crucial in expanding the retailer and vendor partnership for better joint planning, store execution and sales performance.

The event returns to New York again next year, January 15-18, 2017.

Mixed Bag of Holiday Results Released

Twelve major retailers released holiday results last week confirming what was arguably one of the most unusual holiday shopping seasons in recent history. A combination of economic factors, evolving consumer behaviors and an increasingly competitive marketplace provided a challenging and unpredictable backdrop for holiday sales this year. The following are some of the most notable results.

Ascena Retail Group: A total company decline of 4% during the six-week period ending January 3 was largely due to a 15% same store sales decline of 15% at the company’s Justice brand stores during the holiday season. However, performance at other brands such as Ann Taylor, Dressbarn, Lane Bryant and Maurices was much better and allowed the company to affirm its full year profit forecast.
Build-A-Bear Workshop: CEO Sharon Price John expects “fiscal 2015 to deliver our third consecutive year of positive consolidated comparable sales and our third consecutive year of improved profit performance,” despite fourth quarter expectations that same-store sales would decline 5.5%.
Genesco: Same store sales increased 5% for the quarter ending January 2^nd for the parent company of Journeys, Lids and Johnston & Murphy. “We are especially pleased with the strong performance at Journeys, which delivered another exceptional holiday season,” said chairman, president and CEO Robert Dennis.
Lululemon Athletica: CEO Laurent Potdevin said “Sales for the fourth quarter are exceeding expectations.” The retailer announced a successful holiday season with fourth quarter same store sales increasing in the mid single digits.
Ollie’s Bargain Outlet: A 5.6% same-store sales increase during the 9 weeks that ended on January 2 led chairman, president and CEO Mark Butler to comment that he is “Thrilled,” with the discount retailer’s holiday sales. The retailer had only predicted 4% growth and now expects total annual sales of $760 million in 2016.

Source: Chain Store Age

2015 Acquisitions

There were 12 major retail acquisitions in 2015 in the apparel specialty, department and shoe store industries. See below for the details including the effective date and the number of units.

Cool Start to Retail Spending Predicted in January

With many Americans suffering from a holiday-spending hangover, it’s not surprising when we see a lull in spending in January. Coupled with abnormal weather conditions across the country and an uncertain economy, consumer spending is likely off to a slow start this month.

The Chain Store Guide (CSG) Retail Spending Index saw its largest decrease since July of 2015 when it dropped 1.4 points to 101.3 in December. This decline led CHG to forecast low spending in January and an overall slow start to 2016.

The long-term outlook for 2016 is more positive, according Kiplinger’s. They predict that retail sales will expand by a healthy 4.4% in 2016, up from 2015’s 3.2% growth.

Macy’s Cost-Cutting Initiative Means Fewer Stores and Jobs in New Year

Disappointing holiday sales prompted iconic department store Macy’s Inc. to announce major cost-cutting moves on Wednesday.

During November and December’s uncharacteristically warm weather, Macy’s same-store sales declined 4.7%. "The holiday selling season was challenging, as experienced throughout 2015 by much of the retailing industry," said Macy’s chairman and CEO Terry Lundgren. "In the November/December period, we were particularly disadvantaged by the historically warm weather in northern climate zones where both Macy's and Bloomingdale's are especially well-represented. About 80% of our company's year-over-year declines in comparable sales can be attributed to shortfalls in cold-weather goods such as coats, sweaters, boots, hats, gloves and scarves. We also continued to feel the impact of lower spending by international tourists as the value of the dollar remained strong.”

In addition to previously announced closure of 40 stores in 2016, the retailer announced job cuts that total over 3500 positions across the remaining 770 Macy’s and Bloomingdales stores. The company will also implement voluntary separation agreements for approximately 165 senior executives and consolidate their four existing Macy’s credit and customer services center facilities into 3 after they close the St. Louis location in the spring.

Santa is Shopping with his desktop this year

Consumers are shopping 6% more with their desktops this year versus last year, with desktop spending at $35.36 billion in the first 36 days of the shopping season (Nov 1- Dec 6). This figure sets a new record.

Cyber Monday week saw $9.7 billion in desktop spending, up 7%. Spending reached $1 billion + per day for 5 days straight during Cyber Week. 

Holiday spending appears to be on pace to reach forecasts of 9% annual growth in desktop spending and 14% growth overall for the holiday shopping season.

Source: Chain Store Age

Vera Bradley Add Ecommerce expert to its board of directors

Vera Bradley, Inc. has added Mary Lou Kelley to its Board of Directors, bringing extensive e-commerce experience with her. Kelley had served as President, E-Commerce of Best Buy since 2014. Prior to joining Best Buy, she served as SVP, E-Commerce for Chico’s and Marketing VP for L.L. Bean. Previously, she also held key marketing positions with Ashford.com and Ben & Jerry’s.

"We are so pleased that Mary Lou Kelley has joined our Board of Directors," said Robert Wallstrom, CEO of Vera Bradley. "Her vast omnichannel experience, counsel, and insight will be invaluable as we continue to transform our business, which includes elevating our marketing efforts and growing our own verabradley.com digital flagship."

Source: Retailing Today

Q3 Earnings may be dim for some retailers, but the nrf states holiday shoppers are hitting the stores early this year

The National Retail Federation’s Consumer Holiday Spending Survey shows that 56.6% of holiday shoppers already started shopping by early November, up from 54.4% in 2014. 60% of shoppers still plan to purchase apparel or accessories, 46.2% will buy books/CDs/video games, 41.2% will buy toys and 21.8% will purchase jewelry. Over 50% of those surveyed felt that retailer promotions offered so far have been excellent or good.

“Thanksgiving weekend shopping has evolved tremendously over the past few years and can no longer be seen as the ‘start’ of the holiday season, though there’s no question it’s still important to millions of holiday shoppers and retailers of all shapes and sizes,” said NRF president and CEO Matthew Shay. “There is a real sea change happening in retail when it comes to the how, when, where, and why of holiday shopping. Consumers today are looking for great prices and value-add promotions earlier than ever before, and retailers have answered these demands in several different ways already this holiday season.”

Many retailers are hopeful this trend will result in positive earnings results in Q4. Q3 earnings results for several retailers were lower than expected. Macy’s reported earnings of 56 cents per share, down from 61 cents a year ago. Revenue fell to $5.87 billion from $6.2 billion in 2014, the third-straight quarter of declining sales. Dillard’s and Nordstrom also experienced lower than expected results. For Dillard’s, weaker performing categories were men’s apparel, accessories and home, as they reported a 4% decrease in comp stores. Nordstrom sales grew in the third quarter but comp store sales only rose .9% missing the forecast of 3.6%. JC Penney, however, reported higher than expected results for Q3, stating that Sephora and home goods helped them be successful.

Sources: Chain Store Age, Wall Street Journal, Business Insider

Analyzing Friday's Labor Report

Mark Twain famously said, "get your facts first, then you can distort them as you please."  As data analyst we have a responsibility to provide an accurate and complete picture when we poor through numbers and create reports.  The labor report released on Friday provides a great example of an incomplete reporting of the facts. 

If I told you sales for last quarter are up 5% from the prior quarter that would be good news right?  But what if I failed to tell you sales for the company's three new products had fallen 35%.  That would be a key piece of information that might change your view on the company's performance last quarter.  Friday's unemployment report, while good news, only tells part of the story.  Here is the positive part -  nonfarm payrolls rose a seasonally adjusted 271,000 in October taking the unemployment rate down to 5%.  Average hourly earnings of private sector workers rose at a 2.5% annual pace in October. 

However, here is the part which was not included in most of the news stories... the labor force participation rate remained unchanged from September at 62.4, and the labor force participation rate has not been that low since 1978. (see accompanying chart)  94,513,000 Americans who are working age are not working or actively seeking a job.   Retiring baby boomers explains about half of the drop in the participation rate and that trend will continue. The second factor is that people are choosing to go back to school or stay in school longer. The number of individuals enrolled in post-secondary degree granting institutions ballooned to more than 52 percent between 1990 and 2014 according to the National Center for Education Statistics.  Another factor is a sharp increase in the number of Americans on disability.  With an aging labor force that trend is also expected to continue. 

Labor Force Participation Rate

As data analysts our job is to tell the entire story - the good and the bad - so that quality decisions can be made.   

Current US spending increased slightly in october but still sits well below 12 month average; retail sepnding in october the lowest since august 2014

The Consumer Spending Report (CSR) released in November indicates that consumer spending in October increased slightly by .9 points to close to 103 points, but still sits below the current twelve month average of 105.6. The overwhelming majority of consumers rated the economy as fair or poor, continuing this trend from September.

Retail spending decreased in October to 99.4 points. This continues a five month steady decline. Consumers indicated adults are spending less in every retail category: 40.5% spending less on household expenses, 39% spending less on home improvements and 32.8% spending less on clothing/footwear/accessories.

With Black Friday and Cyber Monday coming, 60% of consumers will shop in a retail store, while also using mobile devices and personal computers as part of their sales research and shipping products. In November, consumers indicated they will spend about the same or less than in October, regardless of the upcoming holiday shopping.

Source: Consumer Spending Report

Increase Sales by Managing Out of Stock Inventory

What is an out of stock?

A retail out of stock is when the inventory available on the shelf is either zero, or depending on the product category, when the inventory available for sale is less than the typical job lot quantity.   Conceptually an out of stock is not difficult to understand and therefore one might assume it would be fairly easy to monitor inventory and avoid an out of stock.  In reality however, out of stocks average 8% and much higher on promoted items. 

Why are out of stocks important?

Out of stocks are important for two reasons: (1) lost sales and (2) lost customers.   If your product is not available the obvious result is lost revenue.  We recently studied the average out of stock for two customers for a 52 week period and found a clothing manufacture of basics averages $1,669 per week in lost dollars sold at a major department store.  A consumer products company we studied averages $1,835 per week in lost dollars sold at a major DIY retailer.   Neither of these figures may raise any alarm bells on a week to week basis; however when you total the lost dollars due to out of stocks for a full year, the loss is 7.5% and 8.2% of sales respectively.  In a retail environment where low single digit comp store growth is typical, increasing sales 7% to 8% based on simply managing inventory better has the potential to make a large impact.   Even more compelling, these figures are for one of the many retailers these brands work with so the opportunity can be multiplied several times.  The bottom line: Out of Stock stores are costing your business a significant amount of sales.   The second impact of out of stocks is lost customers.  Studies show a consumer confronted with an out of stock product will substitute for another product at the same store.   What if that consumer decides the other product is the same or even better quality than your product?  Will they purchase your product the next time they are in the store or will they stick with the substitution?   A simple out of stock could cost you a customer and the repeat sales you might have otherwise enjoyed. 

Fixing Stock Out of Stock Issues

A multistep process is required to fix out of stock issues and increase sales.   The steps in the process are outlined in Figure 1 below.  

Calculate Dollars Lost to Stock Outs

Change in any organization rarely occurs until there is a financial incentive to invest in a solution.  In order to motivate the manufacturer and the retailer to invest into solving out of stock issues we recommend starting by calculating the dollars lost to stock outs.    The initial benchmarking can be accomplished through a fairly straightforward process.   An example is provided in Figure 2 below.    The analysis will require either four or eight weeks of sales in units and dollars, ending units on hand, and the unit retail price.  The decision to use four or eight weeks of sales for the analysis depends on the rate of sale of the products being analyzed.   If the products are fast moving, four weeks of sales should be sufficient, if the products are slow moving eight weeks of sales will yield a more accurate result.   The example below includes sales for both periods.    The data should be at UPC/SKU and store grain.  In order to identify the out of stock issues driving lost sales two filters should be applied to the data.  First, a minimum sales activity filter should be applied to make the estimate as conservative as possible.  A good rule of thumb is to apply a filter requiring an average of one unit sold per week over the period.  If your products have a high rate of sale then you can increase the average.  The second filter is used to limit the data to rows with OH = 0.  After applying the filters calculate the average weekly units sold over the sales period you selected.  E.g. total units sold / count of weeks.  The average weekly units sold is used for calculating the lost dollars sold since we are assuming in this example the store would have sold that number of units had it not been out of stock.  To calculate the estimated lost dollars sold multiple the average weekly units sold by the unit price. 

Although the analysis is fairly straightforward it has proven to be a reliable benchmark for quantifying the dollars lost on out of stocks.  Keep in mind in our example the lost dollars is for one week but it is often more compelling to repeat the analysis for additional weeks so a trend can be established. 

Identify Where to Focus

The next step in the process to fix out of stock issues is to review the lost dollars sold report and identify where to focus for the largest potential impact.  A good starting point is to sum the lost dollars by store and then analyze the stores on a percent contribution to the total lost dollars sold.   This will help to identify stores which are having the largest inventory issues.  You can also sum the lost dollars by item to identify which items are having the largest impact on out of stocks.   As you study the results look to see if there is a pattern to the lost dollars.  Is there a group of stores or items which are having a disproportionate impact on lost dollars?  If specific items are having a large impact on the total lost dollars this many indicate a fill rate problem or a promotion which created unexpected demand.  This should be further analyzed to ensure the root cause is identified.   The goal is to identify a subset of stores and/or SKU’s which are having a disproportionate impact on out of stocks.   Our experience shows retailers prefer to trouble shoot problems and develop new processes using a subset of stores and SKU’s for a pilot before agreeing to a broader adoption.   As we move forward in the process we will use this subset to craft the plan to improve inventory management and sales. 

Identify Data Gaps

A common problem encountered with managing out of stocks is a gap in the data available from the retailer.   The most common two gaps are the lack of units on order and week grain data instead of daily data.    Units on order are a very important data point as you move forward to creating a process to manage inventory more effectively.  When you have identified an out of stock, or an item that has less than the desired weeks of supply, the next question you need to answer is does the retailer know about the issue and have they placed an order.   If the answer is yes, then you simply need to ensure the order size is sufficient and then continue to monitor the on hand to ensure the inventory has been placed on the shelf.  If the answer is no, then you will need to work with the buyer to suggest an order quantity which will fix the issue.  The second gap in data for managing out of stocks is week grain instead of day grain data.  Week grain data provides a week ending sales and on hand value which means the out of stock could have been impacting sales for several days before you even receive the data.  When you add the time it takes to recommend an order and ship the product the problem only gets worse.   Some retailers have the ability to transmit daily sales and inventory which will greatly improve the visibility and ability to react quickly to an out of stock.   If your retailer does not provide units on order and daily data you should explore the benefits of closing these gaps with them.  The lost dollars sold report created earlier in the process is a good tool to put a financial impact on the table for discussion.  

Create a Monitoring Process

Creating a process to monitor inventory proactively is critical to reducing out of stocks.   All good processes need tools, and in this case the essential tool is an out of stock monitoring report.  An example can be seen in Figure 3.   The out of stock monitoring report should include the ending on hand units and inventory weeks of supply.  The OH value can be used to identify out of stocks which require immediate attention.  The inventory weeks of supply can assist in getting out in front of a stock out before it occurs.   We add a column for minimum inventory quantity on hand so that each individual store and SKU can be set uniquely if desired.  If that level of detail is not required you can simply fill the minimum quantity on hand at a SKU level across the board.  The minimum quantity on hand value should take into consideration the lead time necessary to process a new order and ship the product as well as job lot quantity if that applies to your business.     The recommended order quantity then is simply a function of minimum quantity OH – current OH.   If the inventory weeks of supply is below the total time it takes to process and ship an order to the store that indicates a possible future out of stock which should be addressed before it becomes an issue.    After the out of stock monitoring report is ready for use the organization should identify who will run the report, the day and time the report will be run, and the specific actions to be taken based on the report findings.  The actions should be arrived at based on a conversation with the retail buyer. 

Collaborate with the Retail Buyer

There is very little benefit in creating out of stock reports and monitoring processes if the buyer is unwilling to accept and process a recommended order.  Some buyers are quite happy to collaborate with a vendor to better manage inventory.  However, our experience indicates buyers frequently need some convincing, and may even need to get buy-in from other people on their team, in order to collaborate with a vendor on inventory management.   This is where the tools which have been developed will be useful.   Create a business plan which starts with the lost dollars sold for a 13 to 26 week period as a way to highlight the financial impact of out of stocks.  Add a discussion on the long term impact stock outs may have on product substitution and possibly even causing the customer to shop at a competitor.   Use the subset of stores and/or SKU’s identified in the first step in our process to recommend a limited pilot for active inventory monitoring and include a detailed explanation of the tools and processes which will be used to manage the pilot and make order recommendations.   Include a forecast estimating the increase in sales which can be expected to result from the pilot by referencing the lost dollars sold report created earlier.  Be conservative with the forecast and propose that 70%-80% of the lost dollars on the report may be capture in new sales.  Work with the buyer to understand the steps involved in processing a recommended order as well as the people who are involved in the process and any deadlines which may impact the plan.  If there were gaps in the data as discussed earlier in this article have a discussion with the retailer about closing those gaps through a more rich set of data sent on a daily basis.   Finally, agree on the duration of the pilot, how the performance will be measured and what the rollout plan will look like after the pilot is successfully completed. 

Execute and Adjust the Plan

The tools for proactively monitoring out of stocks are now in place and you have an agreement with the buyer for a pilot.  Now it’s time to execute the plan.    Up to this point the planning process may have been directed primarily by the sales and account management team.  It’s important to connect with your production and supply chain teams to inform them about new orders that will be coming which are above the historical rate of sale.  After all, if the pilot goes as planned and sales are increased by several percentage points, you will need to ensure there is sufficient inventory ready to ship to keep your fill rate high.  We have seen many pilots successfully identify retail stock outs and retail orders placed only to be short shipped due to lack of inventory. 

Conclusion

Addressing retail out of stocks has the potential to increase sales by several percentage points.  The data analysis is manageable with the right tools in place and the benefits will accrue to both the retailer and the manufacturer.  It’s a classic win-win.  If you would like to explore how Accelerated Analytics can help your company address retail out of stocks simply complete our information request form. 

Additional reading on retail out of stocks

Reducing Out of Stocks

How Much are Out of Stocks Costing You?

Reducing Retail Stock Outs

How Much Do Retail Out of Stocks Cost?

Calculating the Cost of Out of Stocks

Specialized retailers capturing DIY marketshare and amazon joins the home improvement ranks

The Farnworth Group published a study that found that specialized retailers are taking more of the DIY market from big-box home improvement stores like Lowe’s and The Home Depot. Amazon is making its appearance as a favorite online home improvement source.

The study analyzed purchase behaviors among a variety of retail channels and different buying audiences, looking at in-store and online purchasing, category differences and top motivators. 44% of homeowners ages 45-54 turn to specialty retailers rather than big-box stores for flooring needs. Homeowners ages 18-34 are twice as likely as their parents to shop at a paint store. All homeowners agreed that getting the best deal and being able to shop online were key motivating factors.

Retailers and their manufacturers who understand the younger buyer are creating marketing strategies like innovative apps to reach their audience. Consumers are shopping for home improvement items online more than ever, and Amazon continues to increase its influence.

Home improvement stores still have most of the market, but increased competition from online and specialty retailers will require those retailers to focus on knowledgeable employees and local expertise.

Source: benzinga

There is still halloween candy to eat, but retailers put the 'creep' into holiday shopping right away

Due to Christmas creep, retailers are moving out the pumpkins and putting out winter holiday right away, if not already. Some retail trends shoppers can look forward to now:

• Early season deals are popping up and not waiting for Black Friday. Wal-Mart announced November 1 launches “savings and holiday retailtainment”. The iPad mini will be priced at $199 instead of $268. Target, Amazon, Kmart and Toys R Us all introduced their “hot toy” lists in early Fall with sales starting now.
• Thanks to the broad effects of Amazon Prime, Best Buy and Target and many other retailers are offering free shipping throughout the season.
• Many retailers have implemented their in-store and curb pick-up programs in time for the holidays, using online pre-purchasing and mobile apps in store to get shoppers checked out quickly.

 Sales will increase dramatically on Thanksgiving and Black Friday, as usual, but predictions are that 15-18% sales growth will come from online sales on those days. The National Retail Federation (NRF) forecasts holiday sales to rise 3.7% this year with online sales far outpacing brick-and-mortar sales. Counting on those online sales are retailers who have decided to be closed this Thanksgiving to appeal to families: Staples, Home Depot, Lowe’s, Costco, GameStop and Nordstrom.

 Source: Money.com

2015 Holiday Spending by Consumers expected to change drastically for retailers - Black Friday is Out, Store Pick up is in

Deloitte’s 30^th annual holiday consumer spending survey of over 4,000 US consumers identify major changes to some shopping traditions. Key findings include:

• Shoppers are expected to spend $1,440 this holiday season, across gift purchases, socializing, non-gift clothing, and home/holiday furnishings.
• Nearly 70% of consumers plan to “webroom” by looking at items online first and then going to a store to see the item before purchasing – up from 58% in 2014.
• 52% plan to “showroom”, going first to a store to look at an item and then searching online for the best price and then purchasing online.

In addition, 43% of shoppers expect to buy a product online and then pick up in store to save shipping costs and get the item faster. The good news for retailers is that those shoppers will probably purchase more items in the stores when they go to pick up what they ordered.

Black Friday and Cyber Monday? More than half of the consumers surveyed said they do not rely on Black Friday as much as they have before and 41% say the same for Cyber Monday, up 5% from last year.

"Many of the moments that matter this holiday season will occur before shoppers ever set foot in a store. Getting the early promotions and engagement right in the digital channels are core to winning the in-store purchase and the shoppers who tend to spend more,” says Deloitte Vice Chairman, Rod Sides.

Source: Chain Store Age

What is Collaborative Planning, Forecasting and Replenishment (CPFR)?

CPFR is a business methodology which integrates multiple parties in the planning and fulfillment of customer demand.  The idea behind CPFR is that by coordinating activities throughout the supply chain inventories can be moved more efficiently, in the correct quantities, to the correct inventory locations to meet customer demand.  CPFR establishes a common language, common processes and metrics to assist the trading partners to achieve these goals. 

The CPFR model

The customer, as the creator of sales demand for a product, is at the center of the CPFR model.  Surrounding the customer is the retailer and the supporting activities provided by the retailer: Category management, POS forecasting, Replenishment Management, Buying, Logistics & Distribution, Store Execution, Supplier Scorecard, and Vendor Management.  The outside ring of the CPFR model is comprised of the manufacturer and their activities.  The model is broadly organized into four quadrants comprised of Strategy & Planning, Demand & Supply Management, Execution, and Analysis.    The retailer, manufacturer, and supply chain partners interact through a series of eight business activities: Collaboration Arrangement, Joint Business Plan, Sales Forecasting, Oder Planning & Forecasting, Order Generation, Order Fulfillment, Exception Management, and Performance Assessments. 

Information Sharing in CPFR

Information sharing is a critical requirement to make a CPFR initiative successful.   Consumer demand must be quantified at a UPC/store level and quickly communicated from the retailer to the manufacturer.  The orders for new inventory must be placed quickly in the correct quantity and the orders must be fulfilled and shipped on time to ensure delivery to the shelf when the consumer is ready to make the purchase.  Any breakdowns in the communication process, or a lack of visibility into consumer demand in the cycle, has the potential to create an out of stock and lost sales will result.   

Successful Inventory Allocation in CPFR Requires Constant Monitoring and Adjustment

CPFR is not a one-time event, it is a business process which follows the entire life cycle of a product and which must be continuously monitored and adjusted.  All parties including the retailer, manufacturer and supply chain participants must be involved in the planning and communication cycle.  Participants should coordinate and agreed on the initial order quantity to establish the on shelf inventory position.   All parties should carefully monitor demand and adjust the regular on shelf replenishment rules based on local demand which govern the flow of inventory.  Proactive pre-planning for promotions, markdowns or price changes which may impact the regular consumer demand for a product are essential to avoid out of stocks.  

Is the EDI 852 document Sufficient to Enable CPFR?

The EDI 852 document (also referred to as the Product Activity Transaction Set) is the most common method for retailers to communicate retail point of sale data and inventory to manufacturers.   The most common elements of an EDI 852 document include units sold, dollars sold, and inventory on hand by UPC and store.   While the EDI 852 document provides a wealth of useful information to inform the participants of a CPFR initiative unfortunately the implementation of the EDI 852 is often incomplete.  The EDI 852 document outlines standard elements and technical details of the file structure but the implementation by each retailer varies.  One retailer may provide inventory on hand and units on order, while another may provide only on hand, or in some cases no on hand at all.  The problem is not the EDI 852 document or the standard, the problem is the implementation is not consistent.  Another problem with the EDI 852 document is the frequency of transmission.  In nearly all cases the EDI 852 document is transmitted weekly and summarizes sales for the period.  This creates a significant delay in the manufacturer’s ability to sense and react to changes in consumer demand.   If an out of stock is encountered early in the reporting period the manufacturer will not be alerted to that for several business days.  Another very significant gap in the implementation of the EDI 852 document is units on order data.  Unfortunately, a majority of retailers do not provide this data in their EDI 852 document.  So while a manufacturer may identify a spike in sales demand they do not have order information to know if the problem has already been identified by the retailer and an action taken.  The manufacturer can separately consult their purchase order data from the retailer but with today’s modern supply chain most retailers place large orders which are destined for a distribution center which obscures the store level order information.  The retailer may have placed an order but are those units going to the store which most needs them?  This is a critical gap in the information flow which is required for a successful CPFR implementation.    

Replenishment System Barriers to CPFR

Most retailers have invested heavily into information systems to forecast demand, monitor sales, and place automatic orders based on min/max inventory rules.  These systems can be very sophisticated and accurate at an aggregated level, but they are not typically monitoring individual store and product inventory positions.   A replenishment manager at the retailer is responsible for monitoring and adjusting the replenishment system to ensure inventory levels are maintained.  However in reality an open to buy budget has a large impact on the decisions the information system or the replenishment manager can implement.  Far too often inventory has built up in one area while other stores are starved for inventory but the overall financial position of the retailer is constrained and additional purchase orders cannot be issued.  Manufacturers may identify inventory out of stock situations and communicate the problem to the replenishment manager but the replenishment manager may be powerless to do anything to react.  For a CPFR initiative to be successful the retailer and manufacturer must defined the communication process and action steps before the inventory shortages begin to occur.  The action plan must identify who has the authority to override the replenishment system and place an order even if that means temporarily exceeding the total desired inventory position.  The allocation and redistribution of inventory must also be discussed prior to starting the CPFR initiative.  While it may be counter intuitive to create inventory positions which are significantly different by retail store location the inventory must follow, and react to, consumer demand. 

CPFR – the Bottom Line

There are many case studies which point to the benefits of CPFR.  Some of these case studies demonstrate inventory reductions of 10% to 40% with corresponding improvements in sales between 5% and 20%.   It is hard to dispute that when all the parties involved in the supply chain plan, coordinate, and act that business benefits will not be realized.  The difficulty it seems comes down to efficient and consistent communication, and pre-planned agreements on what actions will be taken based on consumer behavior.   Our experience has demonstrated even when all participants are aware of a problem it does not necessarily translate into productive actions to solve the problem within a meaningful timeframe to make a significant impact.  If an out of stock occurs on a Tuesday and the manufacturer identifies it the following Monday when the EDI 852 is transmitted, and the retailer places an order on Tuesday, the shelf has been empty for a week.  That is the challenge of CPFR – communicating and acting rapidly.  This does not diminish the value of CPFR by any means; however the real world implementation is anything but easy. 

Getting Started with CPFR

There are some practical steps manufacturers can take to begin on the path to CPFR:

1. Work with your retailer to identify the gaps in the retail point of sale activity data they are providing and how they can be filled.  These gaps usually revolve around inventory on hand and on order, and the frequency of the data transmission.
2. Work with your retailer to understand the steps involved to prevent, or at least fix, an out of stock.   Who has the authority to place an order?  Who has the authority to override the replenishment system?  Who has the authority to reallocate inventory from poorly producing locations to high producing locations?  What is the turn time from order to on shelf by region?  What are the min/max rules and how were they established?
3. Create a system for proactive monitoring of sales and weeks of supply inventory by store and UPC.   When will the analysis be conducted each day or week?  Who owns this analysis and what actions they will take based on severity of the shortage?  If the retailer will not accept and act on the order advice is there an escalation process and who’s involved?
4. Automate the analysis in step #3 above.   Analyzing sales and inventory at a UPC/store location presents a significant data challenge due to the sheer volume of data for most manufactures.  For example, if you have 45 UPC’s selling at 2500 retail stores there will be 112,500 rows of data to review, analyze and report.   Most manufacturers start with a spreadsheet as their tool for this process but quickly find it is a time consuming and difficult task.  As a result the analysis is not completed quickly and accurately and opportunities can be lost.   A more sophisticated solution is required which is exception based.  Predefined exception reports which alert the analyst to only those items/stores which are below desired levels can be developed.   This saves time and allows the analyst to work on the problem rather than on a spreadsheet. 

Fright Night: Halloween Will be particularly scary for retailers this year but chocolate sales stay high

Halloween retail sales, which had grown to an $8 billion industry by 2012, is expected to fall 7 percent this year, to $6.9 billion. According to the National Retail Federation, this is the lowest total since 2011.

Experts blame the weak Halloween forecast on a shift in consumer spending to experiences rather than must-have items. Some retail experts view Halloween as a prediction of holiday sales, so poor results could cast a spell on the Christmas selling season. Supply and demand are not syncing, creating high inventory levels and low sell thru percentages of Halloween products.

The average American will spend $74.34 on the holiday, forecasts the NRF. This is slightly down from $77 in 2014. Although Halloween product sales may be down, malls are trying to take advantage of the holiday, as it falls on a Saturday this year, with trick-or-treat events and more Halloween-themed items on the shelves and on display. Melinda Merrill, a Fred Meyer spokesman, said that when Halloween falls on a weekday, year-over-year sales growth is typically in the single digits. “When it falls on a weekend, there are more parties, they are bigger and customers decorate and dress up for them on a bigger scale. … We’ll see much larger growth,” Merrill added.

Halloween chocolate sales generated $217 million in 2014, and remains the top-selling treat for the holiday. Leaders Hershey and Mars account for 87% of chocolate Halloween candy. Most variety bags contain chocolate over fruity or sour flavors.

Sources: New York Post, USA Today Democrat Herald, MarketRearch.com